The National Home Builders Registration Council (NHBRC) said its function was to protect the housing consumer, to enable home builders to achieve industry standards and to regulate, influence and enforce compliance to building standards. Its key strategic objectives were the following to ensure effective regulatory compliance, ensure efficient enforcement mechanisms, and to maintain a sustainable warranty fund. For the year under review it had received an unqualified audit outcome with findings, and achieved 70% of its key performance indicators.
Members asked why the financial statements submitted by the NHBRC did not comply with the financial reporting framework prescribed by Section 55 1B of the Public Finance Management Act (PFMA), and why it had failed to submit a strategic plan. Why were there so few women in top management positions, and what was being done to correct the gender balance? Members also asked what the NHBRC was going to ensure that in future, the quality of houses would improve, because currently the houses were of a very poor quality in some developments. Members also wanted to know why builders found it so difficult to register with the NHBRC.
The Community Schemes Ombud Service (CSOS) said its five strategic objectives involved the regulation of all community schemes in SA, controlling, taking custody and providing quality assurance for all community schemes governance documentation, providing a dispute resolution service for community schemes, providing stakeholder training and consumer education, and ensuring the sustainability of the entity. Although it had achieved its dispute resolution programme, it had not achieved the regulation of all schemes in South Africa, and had reached a performance level of only 50% in the remaining three programmes. The reasons for non-performance included the lack of effective systems to automate core operations, and a high vacancy rate. Only 2 423 schemes had been registered against a target of 30 000. Remedial action had been taken in the form of issuing 1 004 enforcement notices and recruiting six administrators to handle the backlog in registrations. Amongst the findings of the Auditor General (AG), the CSOS had incurred R41.7 million in irregular expenditure and R669 000 in wasteful expenditure.
Members asked whether CSOS had done research to find out why community scheme registrations had fallen so drastically. They asked what it was going to do to ensure that it turned around the adverse findings by the AG. They also wanted to know whether its schemes catered for social housing in the townships and rural areas as well.
The Estate Agency Affairs Board (EAAB)had received an unqualified audit opinion for its Fidelity Fund and a qualified audit opinion for itself, which represented an improvement overall. All estate agents needed to be issued with a Fidelity Fund Certificate (FFC) in order to practice legally, and during the 2018/19 financial year the EAAB issued a total of 60 883 FFCs and registration certificates to estate agents -- a 22.64% increase on the previous year.
In terms of qualifications compliance, 1 109 estate agents were trained and certificated against the prescribed qualifications, and 1 128 agents were granted education exemptions. 1 546 agents had written the Professional Designation Examination (PDE) 48 estate agents who were aged 60 years and above had been granted the aged-based exemption in an attempt to assist and retain aged estate agents in the sector. The Estate Agents Fidelity Fund, created to reimburse consumers who had suffered financial losses as a result of theft of trust monies by persons operating as estate agents, and seen claim volumes rise significantly in quarter 4, when over R7 million worth of claims had been received. Efforts had been made to remove stumbling blocks to transformation and assist previously disadvantaged agents from obtaining licences. It had a transformation programme which included one to recruit and train future estate agents while still at school, and another to regularise agents who operated illegally.
Members asked which part of the Estate Agents Act 112/1976 had been used to establish the interim board, whether the board was legitimate, and how long it was going to serve. They questioned how practical it was to require estate agents to be in possession of a black economic empowerment (BEE) certificate before they could be issued with a Fidelity Fund Certificate, which was effectively their practicing licence. They also wanted to know how the EAAB’s powers of inspection, search and seizure could be declared unconstitutional.
National Home Builders Registration Council (NHBRC)
Mr Otsile Maseng, Acting Chief Executive Officer (CEO), NHBRC, said the NHBRC was an entity within the Department of Human Settlements, Water and Sanitation (DHSWS), and its function was to protect the housing consumer through the regulation of the home building environment. This function could be further broken down into three -- to protect the housing consumer, to enable home builders to achieve industry standards and to regulate, influence and enforce compliance to building standards.
The NHBRC Council had been appointed by the Minister of Human Settlements for a period of three years with effect from 1 August 2018. The NHBRC Council consisted of thirteen experienced members with a good balance of skills and it was constituted by the following committees: audit and risk, funds advisory, registrations, industry advisory, human capital and remuneration, social ethics and transformation and disciplinary hearing.
Amongst its key strategic objectives were the following:
- To ensure effective regulatory compliance;
- To entrench a culture of compliance and ensure efficient enforcement mechanisms;
- To maintain a sustainable warranty fund.
Amongst its most important products and services were:
- Registrations and renewal of registrations;
- Enrolment of homes in the subsidy sector and non-subsidy sector;
- Inspections of subsidy homes and non-subsidy homes.
This entity had received unqualified audit outcomes for four of the past five years. For 2017/18, it had a qualification with findings. For the year under review, it had an unqualified audit outcome with findings.
In its overall performance assessment for 2018/19, it had achieved 79% of its key performance indicators. It was the best performance in the last five years, and 15% better than the previous financial year (FY).
He gave an overview of the performance and statistics of this entity over the last five years, which included a breakdown of the staff of the NHBRC by gender, male vs female, as well as job categories. The entity employed 286 males and 348 females, totalling 634. It had five top managers, three of which were male and two female. It had nine senior managers, of which seven were male and two female.
Its training programme formed part of its social transformation programme. In the categories of emerging home builders, technical professionals/building inspectors and military veterans, there were fewer women than men, but in the categories of artisans, learnerships, people living with disabilities, youth and women, there were more women than men.
The presentation detailed the entity’s performance in each of its programmes, namely Programme 1: Administration and Governance, Programme 2:Regulation and Protection, Programme 3: Legal Compliance and Enforcement, Programme 4: Training and Development; and Programme 5:Warranty Fund. (See document)
A comparative analysis was given of the income statements of the NHBRC over the last five years, detailing total revenue, total expenses, profit/loss, net investment income and net profit before finance costs. It had improved in all categories compared to last year except for net investment income and net profit before finance costs. The remaining profit/surplus for the year was R585 million.
The Committee was given a five–year view of the balance sheet of NHBRC and its cash flow. It had R1.096 billion in cash in the bank. The growth in its investment portfolio amounted to R1.8 billion over five years.
Ms S Mokgotho (EFF) asked why the financial statements submitted by the NHBRC did not comply with the financial reporting framework prescribed by Section 55 1B of the Public Finance Management Act (PFMA).
Mr Songezo Booi, Chief Financial Officer (CFO), NHBRC, replied that the NHBRC had submitted the annual financial statements (AFS) to the Auditor General (AG) on 31 May for audit purposes as well as at the end of July, after they were audited. However, there were issues, because in terms of the legislation, the entity needed to submit financial statements that were free from material misstatements. During the audit process, the AG had identified audit differences. There were engagements between the AG and the NHBRC, and an agreement was reached regarding the audit differences and the numbers were adjusted. The AG then had to include a paragraph in the audit report that spoke to that area. That area was being addressed in the current FY, and the expectation was an unqualified audit outcome without findings.
Ms Mokgotho asked why the NHBRC had failed to submit a strategic plan.
Mr Maseng replied that the strategic plan for 2018/19 had been submitted. The DHSWS and the AG representatives present at the meeting could attest to that. The letter from the DHSWS to acknowledge that it had received the strategic plan had not been available at the time the AG had done its audit. Going forward, that letter of acknowledgement needed to be availed.
Ms L Arries (EFF) asked the NHBRC how it would ensure in future that houses built were of a good quality, as many of the houses already built were of a low quality
Mr Maseng replied that the NHBRC had mentioned in its presentation that it was reviewing its current inspection models in cooperation with the University of Johannesburg. It was the first to acknowledge that its current inspection models were not perfect. There was room for improvement in terms of efficiency and reach in order for it to do what it was intended to do, to ensure good quality homes.
Ms Mampe Kotsi, Deputy Chairperson, NHBRC, said ratification was never a full programme of the NHBRC. It came from the DHS at a time when there were so many houses which were falling apart and needed to be repaired and at that time, most of the houses were houses that had been built before the existence of NHBRC. Therefore NHBRC’s main concern was that each house built was inspected? There was a warranty fund from which houses could be rectified. It should not be the responsibility of the NHBRC to rectify houses which were had been build before its existence.
The Chairperson said the NHBRC was part of the DHSWS, and thus it was the NHBRC’s responsibility to rectify houses, whether they were built before its existence or not. It was the responsibility of the NHBRC and the DHSWS, and if there was no budget, the Minister had to be approached.
Mr M Mashego (ANC) said the DHSWS had spoken on the NHBRC’s behalf the previous day, although it was not represented. He said the structure of the board -- 14 members, 10 males and four females -- was unacceptable in terms of gender equity in 2018. Government had committed to 50/50 gender representation and the NHBRC was a Section 21 company under a government department. Even at senior management level, there were only three women. This entity was not training women for senior management positions. It created the impression that the entity did not see women as fit to be in senior management positions. If it wanted to be taken seriously, it had to change its demographics.
Ms Arries said to achieve social transformation, more females needed to be trained. Also amongst the military veterans, more females need to be trained. The NHBRC had not reached its gender equity targets because there were too few females in senior management. There were not enough females on the board either.
Ms Kotsi replied that the board was appointed by the Minister. There were representatives from the DHSWS at the meeting, and she was sure the Minister and the Department had taken the gender balance into account.
Ms Sindiswe Ngxongo, Chief Operating Officer (COO), DHSWS added that the Department tried to have a 50/50 balance, even it was not always practically possible. It did not only balance men and women, but also tried to incorporate the youth. With the current board of the NHBRC, the youth was incorporated, but no suitable person with disabilities could be found.
The Chairperson said the issue of gender representation should be 50/50. It should never be confused with youth or people with disabilities. It needed to be corrected.
Ms Ngxongo replied that the 50/50 gender balance was observed when recruiting youth as well.
Ms M Mohlala (EFF) referred to Slide 18 of the NHBRC presentation, which dealt with social transformation. She wanted the work profile of people with disabilities employed by the NHBRC.
Mr Maseng replied that there were six people with disabilities employed throughout the organisation. Through a concerted effort, driven by the Council, it had corrected the gender balance at senior management level. When recruiting, it prioritised the targeted group of people with disabilities. There was a social transformation committee as part of its governing structure which prioritised targeted groups, and more people with disabilities would be recruited into the organisation.
Mr M Tseki (ANC) said the Community Schemes Ombud Service (CSOS) dealt with issues that included Section 21, owners of properties, the Estate Agency Affairs Board (EAAB) dealt with estate agents, and the NHBRC dealt with builders and construction companies. The CSOS or NHBRC could, for example, experience a problem with a certain estate agent. How did the entities envisage interlinking to address common problems as part of this process of transformation?
Mr Maseng replied by referring members to slide 18, which was a breakdown of the initiatives the NHBRC was launching as part of its process of social transformation. When looking at the numbers one could see that there was a bias towards women across sectors.
Mr Maseng replied regarding transformation and management. The numbers in the report were for the year under review, which was 2018/19. He was happy to report that currently the numbers reflected differently in senior management. The recent appointments at senior management level in the NHBRC had targeted women. The newly appointed head of corporate affairs and head of strategic management were both black and female. This drastically changed the complexion of the NHBRC at the senior management level to a more appropriate demographic balance.
Ms Arries referred to disciplinary cases. There had been 606 cases, but only 134 suspensions. What were the outcomes of the other disciplinary cases?
Ms Mohlala (EFF) asked for a performance bonus overview for NHBRC for FY 2018/19.
Mr Booi said that for FY 2018/19, no bonuses had been approved by the Council as yet.
Mr Tseki said the performance of NHBRC for FY 2018/19 was good at 79%. Why could it not be 100%?
Mr Maseng replied that there had been 33 performance areas, and in 26 of these, 100% had been achieved. The NHBRC had underachieved in only seven (21%).
Ms N Mvana (ANC) referred to the registrations of new homebuilders and renewals. The renewals were less. What had happened? Were builders not on time to register during that financial year? The reason why she asked the question was that builders, especially emerging contractors, had told her it was not easy to register at the NHBRC. Builders said it was like climbing up a mountain.
Mr Maseng replied that there would be a discrepancy, as each action happened at a different stage. Registrations represented the number of new companies which were registered within that FY. The renewals would represent those companies whose registrations had lapsed within that FY and which had come to renew them.
Ms Mokgotho asked why the NHBRC had not taken steps to prevent fruitless and wasteful expenditure amounting to more than R1 million.
Mr Tseki said the NHBRC had reported on its positive audit outcomes for many years. During FY 2017/18, it had had a qualification with findings. Could the NHBRC give some examples of the findings and what it had done about them.
Mr Booi replied that one of the issues raised by the AG was the definitions of the KPIs in terms of the “Smart-ness” principle. The others were the one he mentioned before -- the misstatements in the FS, and the findings regarding the supply chain management (SCM).
Mr Booi said he noted the concerns and comments of the Chairperson and members, and the NHBRC itself shared the sentiments mentioned. He wanted to provide context to some of the findings of the AG. There were cases where tenders were allocated in previous years without the correct procurement procedures being followed. The NHBRC still had to honour those contracts. These contracts ended during the 2018/19 FY. The current financial year would be free from those cases. A process of cleaning up supply chain operations was under way. All processes and procedures were being aligned with the prescripts of the legislation.
Mr Tseki said the subsidy enrolments had been close to 170 000 in 2014/15. The next year it was less than half of that, and it was decreasing year on year. What were the reasons? He did not understand the drop in numbers. Could the NHBRC please explain?
Mr Maseng replied that enrolments in the subsidies sector were heavily dependent on the provincial governments. When development declined in the provinces, the number of enrolments also declined. He spoke about the recent policy shift within government with regard to housing developments. In 2015/16, there were a huge number of developments. Currently there were fewer. The numbers had declined.
Ms N Sihlwayi (ANC) said there were lots of registration programmes, which was a burden to the DHSWS. Among the areas of concern was the poor quality of houses. They were visible in communities. She saw that the NHBRC had suspended builders who rendered sub-standard workmanship. How had they entered the industry in terms of recruitment? Huge amounts of money were wasted on cases of sub-standard building practices. Was there a plan or a programme to capacitate these builders before they entered the industry?
Mr Maseng replied that the NHBRC availed its services throughout the country and it was increasing its footprint. It was negotiating a memorandum of understanding (MOU) with the South African Local Government Association (SALGA) to use municipal infrastructure in order to make its services available at municipal offices.
Builders had to write competency tests. In order to assure quality, builders had to go through a test. They either passed or failed. The tests were not unreasonably difficult. They had to pass the competency test to mitigate the risk to the public.
Ms Sihlwayi said poor people were bankable. This was what the presentations were demonstrating, but because this constituency was not financially strong, many defaulted on their payments. This led to many court cases, especially in the Eastern Cape. The practice was: if you do not pay, you were thrown out, or have to go to court. Was that programme strong enough? Were house buyers made adequately aware of their rights and responsibilities, and were there fall-back options in cases of defaults?
The Chairperson said there was a decline in homebuilder registrations with the NHBRC. What did it reflect? Did homebuilders just not register with the Council, especially those contracted by the government? Did it become a normal thing to practice without registering with the NHBRC? The DHSWS had reported that provinces had lots of money rolled over. Did it reflect the performance of the provinces in terms of workflow in awarding contracts for subsidies? The decline could not be celebrated if it was based on sub-standard performance. Could the NHBRC please comment?
Ms Kotsi said that with regard to non-subsidy house registrations, when the economy was down, fewer houses were being built, so there would be fewer registrations. With subsidy houses, the NHBRC depended largely on provinces to indicate how many houses they planned on building. Provinces would indicate, for example, that they planned to build 20 houses, but they would build only five. This reflected on the NHBRC, although it had no control over these factors.
Community Schemes Ombud Service
Mr Mthobi Tyamzashe, Chairperson, CSOS, said the organisation had five strategic objectives -- the regulation of all community schemes in SA; controlling, taking custody and providing quality assurance for all community schemes’ governance documentation; providing a dispute resolution service for community schemes; providing stakeholder training and consumer education; and ensuring the sustainability of CSOS.
These strategic objectives were also its programmes. It had achieved 100% only in the dispute resolution programme, but did not achieve the regulation of all schemes in SA, and had achieved 50% in the remaining three programmes. The annual report stated that among the reasons for non-performance were the lack of effective systems to automate core operations, and a high vacancy rate.
Strategic objective 1, the registration of schemes, had had a target of 30 000, but only 2 423 had been registered. Remedial actions had been taken in the form of issuing 1 004 enforcement notices and recruiting six administrators to handle the backlog in registrations. (See document)
Among the findings of the AG, the CSOS had incurred irregular expenditure amounting to R41 734 000. This related to the prior year’s tenders investigated by the AGSA. CSOS had also incurred wasteful expenditure of R669 000 due to cancelled tenders and flights.
Looking towards the future, the CSOS Act needed to be amended to allow for stronger powers to enforce registration and the payment of levies, to increase CSOS obligation to ensure governance within community schemes, the appointment of investigators/inspectors to conduct inspections or investigations within community schemes, and provision for a process of dealing with the internal appeal against adjudication orders. The CSOS policy to support the amendments was in the process of being drafted.
The total income for the FY was R236 741 000, consisting of a government grant of R31 105 000, levy income of R195 672 000, dispute resolution income of R424 000, and interest received of R9 403 000.1
The organisation had a total of 90 staff during the last quarter consisting of 76 permanent staff, one seconded executive, eight interns and five temporary employees. It had a number of key positions vacant. They were the Chief Ombud, the CFO, the Adjudicator General and the Executive Manager for Corporate Affairs. Processes were under way to fill them.
The new board was appointed from 1 January 2019. They were tasked with the implementation of the findings from an investigation into the CSOS investments. This included a disciplinary process against the CFO and the Acting Chief Ombud, civil action to recover the R80 million, laying
criminal charges with the SA Police Service (SAPS) and reporting the matter to the prudential authorities.
Mr Tyamzashe concluded by detailing the future plans for CSOS.
Ms Mokgotho said the decline in the number of registrations of community schemes had a negative impact on CSOS. What was it going to do to improve the situation? Had it done research to find out what the cause of that decline was?
Ms Mohlala referred to the presentation statement that there would be an improvement in the collection of revenues once all schemes in SA were registered. How far was the database in capturing the community schemes?
Ms Sihlwayi said it was important to appreciate the role of CSOS, as it dealt with the issue of immediate dispute resolutions, where poor people were affected, but she was worried about the way CSOS acquired its data. Were there surveys to target certain schemes? She added that the presentation had mentioned that CSOS was unable to reach some schemes, as all were not registered. It was mentioned in its audit findings. The delay in dealing with audit findings would incapacitate CSOS in the long run. How long was it going to take to address the findings? The Committee needed to assist it in this regard.
Ms Ndivhuo Rabuli, Acting Chief Ombud, CSOS, replied that the information in the current database came from the deeds office, which formed part of the Department of Rural Development and Land Reform (DRDLR). It gave the information on all the sectional titles in SA. The Companies and Intellectual Property Commission (CIPC) had been approached for information. It would provide the information on home owners associations and share-block companies. The South African Revenue Service (SARS) also had information on registrations, and municipalities had information on common-law home-owners’ associations. The process was under way to get this information. This would have an impact on the payment of levies, which would increase.
Ms Mohlala asked CSOS why there was non-compliance in the payment of levies, which would lead to the continuation of a shortage in the projected collection.
Ms Rabuli replied that the payment of levies was linked to the registration of schemes. The more schemes registered, the more levies were paid. There had been a challenge in Q1 of the FY under review. The payments had been low, and it was the period when the VBS story broke. There was dissatisfaction in the industry, which CSOS had to address. It had also had to come up with mitigating factors, and the payment had picked up.
Ms Arries asked what CSOS was going to do to ensure that it turned around the adverse findings by the AG due to the irregular expenditure of R26 million.
Ms Mohlala referred to the presentation statement that, in mitigation of the finding of irregular expenditure, a disciplinary hearing was to be held in November 2019. The irregular expenditure had been committed in FY 2014/15. Why was it taking so long?
Ms Rabuli replied that the AG had started investigating the case in 2018. Towards the end of 2018, a report was issued and tabled before the board in 2019, just after the new board had been appointed. The board had to develop the charges and then approach the AG for permission to prosecute. The AG had given approval for the investigators to come through in June, July and August. This process had caused the delay, but the disciplinary hearing was on course to implement consequence management in this case.
Mr Tseki displayed dissatisfaction with the acting status of the CSOS board. He said it should be permanent, or on a contract, because it was difficult for acting officials to make decisions. He wanted the board to tell the chairperson when it was going to formalise its status.
Mr Tyamzashe replied that CSOS noted the concern of the Committee over too many acting positions, but the acting chief ombud and the acting chief financial officer emanated directly from that unauthorised investment of R80 million into the FNB and ABSA accounts.
Mr Tseki asked the CSOS whether schemes were being built in rural areas as well. The picture of the scheme in the presentation looked very affluent and urban. He wondered whether schemes catered for social housing in the townships and rural areas as well.
Ms Rabuli replied that by definition, no scheme existed in rural areas. In townships, it might exist in the form of a housing cooperative.
Mr Tyamzashe was envious of the EAAB when it was talking about transformation. CSOS was constrained in doing that. He once had to address a township audience. He was asked to talk about CSOS and the audience were wondering: “What were you talking about?” There was a need to talk more about CSOS. He himself did not know about CSOS until he saw the CSOS levy on his municipal bill, but he still did not understand it. There was a need for marketing and communicating about CSOS and the EAAB, especially to the township communities. The NHBRC was better known.
Ms Sihlwayi said there seemed to be similarities between the work of CSOS and that of the NHBRC. Was there a networking process between the two entities, because seemingly they were concerned about the rights of people in the industry, according to their programmes?
Mr Mashego said the CSOS board existed, but the public was unaware of its existence, what its functions were and what it stood for. There was a need for CSOS, as well as the EAAB, to market themselves better to their stakeholder publics. The NHBRC was more known.
Ms Rabuli said that the fruitless and wasteful expenditure had resulted from the cancellation of a tender. The fruitless expenditure arose from the money the entity paid to advertise the tenders. It was classified as fruitless expenditure.
Ms Mokgotho asked CSOS what it was going to do to curb fruitless and wasteful expenditure due to the cancellation of tenders.
Mr Taurean Holmes, chairperson of the CSOS finance committee, replied that one of the measures put in place was that the procurement process would get to a point where the Bid Adjudication Committee (BAC) had a report. Once that had happened, the services of internal audit were used to check on that process and give assurances that the process was compliant before the contract was awarded. This process was put in place to make sure that all procurement process steps which had to be followed, were followed, and if they were not followed the finance committee had to understand why not. The challenge was often that the tender had been awarded, and spending had started on that contract, and that was how spending became irregular. This was the mitigating process going forward.
Ms Mohlala said the presentation did not mention any disciplinary procedures CSOS had instituted as penalties for the fruitless and wasteful expenditure. She asked whether there had been any.
Ms Rabuli said no disciplinary procedures had been followed to hold those responsible to account due to the nature of how it had happened, which was as a result of a whistle blower.
Mr Mashego thought the AG was wrong regarding the fruitless and wasteful expenditure of CSOS, because CSOS had proactively cancelled a tender after a whistle-blower came forward claiming that the tender was illegal. He felt that there had to be a way to accommodate this practice in the accounting system, without it reflecting badly on the organisation, or be categorised as irregular, fruitless or wasteful expenditure.
The Chairperson said general rules pertaining to the outcomes of the AG’s audit, was that there were issues the AG was raising. The Committee expected all entities to develop a plan of action to address the issues raised by the AG. All entities contributed to a bad reflection on the DHSWS, because of incorrect procedures in supply chain management. The DHSWS and its entities had to perfect the system within the current financial year. In this country, most of the corruption in government occurred in the processes of supply chain management.
The situation described where a tender was cancelled, because a whistle-blower alleged that a tender was illegitimate, was a recurring problem. The Committee would also call the Minister and ask for a tender to be stopped if it appeared that it was an illegitimate transaction. It would be helpful if the AG could clarify this situation. Having said that, the Committee had zero tolerance for corruption in the procurement processes of the government departments and entities they were responsible for, because corruption was what had put the country in its current position.
Mr Holmes thought it was unfortunate that CSOS had incurred the fruitless and wasteful expenditure. It had had some arguments with the AG, but it had had to concede that it was fruitless and wasteful expenditure. Apart from this instance, there were no other instances of fruitless and wasteful expenditure. To date, CSOS had not had any whistle-blowing information, and it was hoping to keep its fruitless and wasteful expenditure to zero, but it was continuously monitoring the situation.
Mr Londoloza Songwevu, Senior Audit Manager, AGSA, said the office of the AGSA was guided by prescripts when conducting audits. In the case of this particular matter, the AG had looked at Section 13 of the Preferential Procurement Policy Framework Act (PPPFA). This section listed the number of instances in which tenders could be cancelled. When dealing with a case like this, the reasons why the tender was cancelled were checked against this list to assess whether the cancellation was legitimate. The cancellation in question did not meet the requirements of a legitimate cancellation. This was a second cancellation, and the Act also stipulated that the entity needed National Treasury’s (NT’s) pre-approval before cancelling a tender. The AG had also looked at the correspondence with NT, and NT also agreed that the reasons were insufficient for the tender to be cancelled. That was the basis of the finding. The AG had also looked at the policy of the entity in terms of its requirements to cancel a tender. It listed reasons and circumstances under which tenders could be cancelled, so it was not a subjective conclusion. It was tested against the requirements of the PPPFA and CSOS’s policy.
Ms E Powell (DA) asked whether it was it possible for CSOS to provide a list of all its investment accounts, following the loss of the R80 million invested with VBS.
Ms Rabuli replied that an investment was made into an FNB account. The account holder was VBS. There was an investment made into an ABSA account. The money paid into the ABSA account had been recovered by CSOS. NT had managed to ratify the non-compliance in terms of the opening of that ABSA investment account. The VBS account was the subject of the investigation that had been done.
Ms Powell asked when the outcome of the SNG Grant Thornton probe would be released to the public.
Ms Arries asked how far the forensic investigation was into the lost CSOS investment.
Ms Rabuli replied that the Grant Thornton report was the report initiated by the Minister of Human Settlements, and it was the Minister who would release it.
Ms Ngxongo added that the report had formed part of the handover report of the former minister. In between, however, there were court cases by the former chief ombud, challenging his suspension. The high court had made a decision on 25 September. The Minister was considering that report and she thought now that the matter had been concluded, the report would be published. This was also in line with the stakeholder engagements that the Department had had with CSOS, where the stakeholders had requested that the Department come back with the outcome of the report, what the Department’s response to the report was, and the status going forward. Now that the matter was closed, she expected the Minister to finalise the engagement over the report and a statement would be released to the stakeholders.
The Chairperson did not understand what CSOS meant when it reported on the action taken against the people who had decided to invest CSOS’s R80 million in VBS. In her understanding, the person to be punished was the one who invested the money. She did not understand what CSOS wanted from the Reserve Bank (RB). The RB had done its job. It owed CSOS nothing. Was the investment legal? If the investment was illegal, there had to be consequences for those implicated. The Committee wanted progress reports on this matter.
Mr Holmes replied that the R80 million investment was not legal, because it did not follow NT regulations. The Grant Thornton report and the CSOS report both came to the conclusion that the investment was not legal. He added that there was no resolution on the investment by the board. It came out clearly in the two reports mentioned earlier. The two officials implicated in the report had decided on their own to invest.
Ms Arries said there was a high court case in Johannesburg to stop the filling of the vacancy of the chief ombud of CSOS. What had been the outcome of the court case?
Mr Tyamzashe replied that there had been a disciplinary hearing of the people who made the investment. CSOS had been told it had no jurisdiction to discipline those people. While the disciplinary process was happening, the contracts of the chief ombud and CFO had expired. CSOS had to function without those posts being filled until this matter had been resolved. The previous acting ombud was preventing CSOS from recruiting a chief ombud. A week prior to this meeting, the court declared CSOS free to appoint an ombud. CSOS had submitted a prospective candidate to fill the position as CFO to the Minister. The Minister had agreed that the candidate was suitable, but the candidate was no longer available.
He explained why CSOS had approached the Reserve Bank. CSOS knew that the account was at FNB and had applied to the courts to freeze the amount at FNB. FNB had told CSOS that the account was in VBS’s name, not in CSOS’s name. CSOS wanted to trace where the money was without the help of FNB. It had laid a charge at a police station. CSOS had asked itself which other parties could assist to retrieve this money. This was why it had approached the RB, because the RB had caused the investigation to happen. CSOS wanted the RB to know that some of the money had been taken without authorisation. There was a certain person’s name that featured right through. CSOS had also reported that person to the finance authorities. It was reporting implicated people so that they could be disciplined by their professional boards. It had gone to the SIU as well. It reported the matter at every possible institution which could be of help. Hopefully all these efforts would bear fruit and the money would be retrieved. Even if CSOS itself did not get the money back, it had to go back to the fiscus. This was what the VBS issue was about.
The Chairperson said CSOS had to manage accruals. The Committee did not want to see accruals. Accruals meant no budget. It did not want accruals, which made the system not to perform. She was referring to the accruals as raised by the AG in CSOS’s financial statements.
Mr Holmes explained that accruals could be debtor’s or creditor’s accruals. In the case of CSOS, the accruals mentioned related to people owing money to CSOS, or debtor accruals. What happened was that after 31 March, people were still paying CSOS. Basically it was amounts that were paid to CSOS after the end of the financial year cut-off date. It was not payables related.
Ms Mohlala asked for a performance bonus overview for CSOS for FY 2018/19.
Ms Rabuli replied that staff who were implicated in causing irregular or fruitless and wasteful expenditure had not received any performance bonus for the FY under review.
Ms Mvana said she had made an assumption that CSOS was the worst entity, but the presentation had changed her mind. She understood now what was happening, and why the entity had received such bad audit reports in the past. She wished the entity all the best, and encouraged it to keep up the good work.
Estate Agency Affairs Board (EAAB)
Ms Mamodupi Mohlala, CEO, EAAB, said the Board had received an unqualified audit opinion for the Fidelity Fund. The EAAB itself had received a qualified audit opinion as a result of one item, but overall it had performed better in the audit. The group had a R27 million surplus for the year, and the Board had a R19 million surplus for the year.
All estate agents needed to be issued with a Fidelity Fund Certificate (FFC) in order to practice legally. During the 2018/19 financial year, the EAAB had issued a total of 60 883 Fidelity Fund Certificates and registration certificates to estate agents -- a 22.64% increase compared to the 49 645 FFCs issued in the previous financial year.
The education and training department was responsible for implementing and monitoring compliance with the Standard of Training of Estate Agents Regulations, 2008 (known as Education Regulations), with the aim of professionalising and supporting the transformation of the real estate sector. 1 063 intern estate agents who entered the sector successfully had submitted their intern logbooks, which were assessed as compliant with the prescribed criteria in terms of Regulation 2 of the Education Regulations.
In terms of qualifications compliance, 1 109 estate agents were trained and certificated against the prescribed qualifications in terms of regulation 4(1)(a) of the Education Regulations. In addition 1 128 estate agents were granted education exemptions, and these were confirmed to have complied with the requirements set out in regulation 4(1)(a) of the Education Regulations. 1 546 estate agents had written the Professional Designation Examination (PDE, or Board examination). 1 134 Estate agents who had completed the PDE had been awarded the relevant professional designations. 48 estate agents who were aged 60 years and above were granted the aged-based exemption -- this was an attempt to assist and retain aged estate agents in the sector. 185 estate agents who continued to practice in the profession were exempted from undertaking the prescribed professional designation examination. This exemption was aimed at recognising the estate agents' work experience, and thus retaining them in the sector.
The Estate Agents Fidelity Fund was created by the Estate Agents Affairs Act 112/1976, and was administered by the EAAB. One of the purposes of the fund was to reimburse consumers who had suffered financial loss as a result of the theft of trust monies by persons operating as estate agents. Claim volumes rose significantly in quarter 4, when over R7 million worth of claims were received.
Applications for disqualified agents to become compliant were processed in terms of section 27 of the Estate Agents Act 112/1976. Efforts to remove stumbling blocks to transformation and assist previously disadvantaged agents to obtain licences, included special dispensations for previously disadvantaged individual (PDI) agents, a payment plan for the payment of penalties and outstanding fees, and a PDI board resolution permitting PDI agents to obtain exemption from compliance where appropriate.
The Consumer Awareness and Communications Department served to promote and create awareness of the EAAB mandate. Sub-programmes were media relations, external communications and social media.
During the year under review, the Department had worked towards the following:
- Increasing the number of consumers accessing information about the Board;
- creating a culture of consumer rights within the real estate sector;
- facilitating a two-way improved communications between the Board and stakeholders;
- increasing access to information about the Board’s programmes in townships and rural areas; and
- educating consumers on how to lodge complaints against estate agents and the importance of using registered estate agents.
During the year under review, the EAAB was covered by over 60 online media and 75 print media publications ranging from local, regional and national newspapers, and was featured in over 30 broadcast media.
The EAAB had a transformation programme which included the ‘One Learner, One Estate Agency’ Youth Brigade Programme to recruit and train future estate agents while still at school. It also includes a programme to regularise agents who operated illegally. It trains previously disadvantaged agents and provides special arrangements for them in terms of payment schemes, it provides training and development to professionalise agents from previously disadvantaged backgrounds, and it gives business training and an incubation services to assist previously disadvantaged agents to become principals and open their own agencies.
The EAAB was also responsible for stakeholder management. It offered several channels through which estate agents could participate in Continuous Professional Development (CPD) programmes. During the year under review, the EAAB had conducted their Integrated Real Estate Dialogues (IRED) which were oﬀered to estate agents through the Continuing Professional Development (CPD) Programme. CPD E-Learning video clips were produced and made available for stakeholders eligible to comply with CPD compliance. The E-learning video clips could be accessed on the MyCPD portal menu on the EAAB’s website via the YouTube platform. Pursuant to the IRED, the EAAB also participated in a number of additional real estate seminars, workshops, and exhibitions around the country, providing information regarding its core mandate to stakeholders. The participation of the EAAB at a further 20 stakeholder events categorised as “other” provided an excellent opportunity to engage with its stakeholders. In addition, all communications were frequently shared with estate agents via email and all information was made available to estate agents on the EAAB’s website and in the quarterly publication of the “AGENT” magazine.
The Information Communication Technology (ICT) department had completed and implemented the following projects in the current financial year:
- The E-Logbook, which was meant to replace the current paper-based logbook submission by intern estate agents and their mentors, and was a requirement of the Education and Training Department; The Question Bank, which was intended to simplify the process of setting up the quarterly Professional Development Examination (PDE); and
- The second cycle of the Continued Professional Development (CPD) system for estate agents.
The Property Practitioners Bill was promulgated into law on 2 October 2019.
The EAAB continued to invest in staff training and development by conducting various training and development initiatives, and spent R324 637 on formal training and R175 450 on informal training interventions. The EAAB once again provided experiential learning to unemployed graduates as part of the Internship programme, and registered 10 of its permanent employees for the 12-month NQF5 Business Administration Learnership Programme. The programme was specifically targeted at employees who possessed Matric as their highest qualification;
Ms Mokgotho asked which measures the EAAB had put in place to curb non-compliance with procurement legislation, which had led to fruitless and wasteful expenditure in excess of R2 million.
Ms Karen Son, Acting CFO, replied that the EAAB was very aware of the need to curb irregular, fruitless and wasteful expenditure. As part of the action plan to progress in this area, the EAAB had developed standard operating procedures (SOPs). It had communicated the SOPS to all staff. It had also decided on a training initiative on the Preferential Procurement Policy Framework Act (PPPFA), so that all staff could be aware of the prescripts of the Act. Another measure to curb fruitless and wasteful expenditure was to make staff aware of the fact that they would have to pay the Department back if it incurred fruitless and wasteful expenditure due to their negligence, especially when it was interest on late payments, penalties and fines.
Ms Dineo Mphahlele, Executive Manager: Inspectorate, EAAB, said from the audit side she was pleased that the Committee had a zero tolerance policy towards non-compliance and irregular expenditure. It assisted the audit function to insist on accountability at all levels. She referred the members to the annual report, where the audit committee had raised the need to put internal control systems in place to tighten up controls over financial processes. The AG’s comments had stated that “…significant internal control inefficiencies had led to that one qualified item.” The EAAB was aware of that and the supply chain management position had been advertised. Resources were being made available to tighten up the internal control systems.
Mr Tseki asked who owned the IT licence the EAAB was paying for. Why was the EAAB paying this individual?
Ms Mohlala replied that the IT licence issue was a historical problem that the EAAB was looking into. There was not only one licence. The EAAB had discovered there was huge segmentation of the IT licences. This caused the fees to be much higher than they should have been. Government had a transversal contract with Vodacom, and the EAAB was looking at how it could benefit from that relationship and in so doing lower the fees it paid for IT licences. It would also free the EAAB from private sector monopolies over government IT systems. The board had also approved the appointment of a chief information officer, who was an IT specialist and who would help to rectify the licensing challenges and be responsible for making the IT systems run more efficiently. The EAAB had advertised in the media for an ERP process which would be a comprehensive IT solution to all the problems which it faced.
Mr Tseki said the EAAB’s assets were green, and they were growing. He asked what the EAAB was planning to do with the money that was accumulating. He understood that it was applied in transformation programmes and to train young people, which was important, but how else could it be applied. Could it assist the DHSWS? What did the EAAB envisage in 10 years?
Ms Mohlala replied that it was correct that the EAAB had accumulated a substantial amount of money. Currently the money was invested in the open market off-shore. The EAAB had an investment portfolio. The board had indicated that it was quite critical that the EAAB had a structured investment process so that the return on investment yielded full value for the EAAB. It was in the process of procuring the services of an investment consultant who would come up with a comprehensive investment plan.
Ms Sihlwayi said according to the presentation, the EAAB’s powers of inspection had been taken away. How did the EAAB investigate companies for compliance if their investigative powers were taken away? She needed more clarity.
Mr Mashego said the EAAB presentation stated that Section 22 of the EAAB constitution had been declared unconstitutional, rendering the EAAB without investigative powers. If the EAAB had the mandate to investigate, how could this clause be unconstitutional? The EAAB’s existence was being challenged, because it also had to act if wrongdoing had been discovered during the investigation. This challenge had to be addressed.
Mr Nkosinathi Biko, Chairperson, EAAB, replied that questions had been asked about inspections and there were questions related to transformation. EAAB’s response was that it had the opportunity, given the bill, to deal with the limitations through the new Act, and indeed the new Act now allowed the entity much better space around inspections.
Ms Mohlala added that it was correct that for the past four years, the EAAB’s hands had been tied behind its back, based on a Constitutional Court (CC) decision. One of the EAAB’s licencees, Auctionalize, had taken the EAAB to the CC, challenging its powers of search and seizure, because the EAAB had done an inspection and seized documents from Auctionalise, and it felt that the powers the EAAB had were excessive. The CC agreed with Auctionalize and had indicated that the powers the EAAB had used for search and seizure were unconstitutional. With the promulgation of the Property Practitioners Act, that situation had been remedied. Chapter 5, sections 24-30 dealt specifically with those powers. It clarified the EAAB’s powers of search and seizure and under which circumstances the EAAB inspectors could use those powers.
Mr Mashego said the EAAB had taken advantage to summersault from bad into good. All Members could not come to the meeting with the intention of taking the EAAB on, and then be pacified by a good presentation. The EAAB had to be clear about what they wanted to do, and who had to benefit. For now, its mandate was too broad, and it might therefore fail to hit its target.
Ms Mohlala replied that the objectives of the EAAB could be found on page 15 of the annual report.
Ms Mvana had a better understanding of what the function of the EAAB was.
The Chairperson said the EAAB agreed on the need for transformation. If the need was not evidence–based, the entity would produce incorrect outcomes. The EAAB still operated in the old way and had failed to narrow the gap of inequality. It still favoured the affluent cities and provinces above the less affluent. It was not responding to issues, as was evident on the ground.
If the CC had declared the EAAB’s constitution unconstitutional, it had to be because of the Act, not because of the country’s constitution. The EAAB’s existence was based on investigating and correcting. Currently it had no powers. The Minister had to get legal advice on the way forward.
Ms Mohlala replied that the EAAB was putting agreements into place with different state entities to see how they could synchronise their transformation programmes. It required communication with national and provincial departments in order to synchronise it.
The EAAB was in discussions with the department of rural development, because it realised that it could not claim transformation while it focused only on the metro’s and certain provinces. In addition, it had had discussions with the Congress of Traditional Leaders of South Africa (CONTRALESA) to see how it could get to the most rural parts of the country. In the recruitment processes for its internships, it was going to the most rural parts of the country. The recruitment process had a complete provincial spread so that no province was left out. In some provinces, there were very few black-owned estate agencies and the EAAB, in conjunction with other government departments, was trying to stimulate interest in the estate agency profession and entrepreneurship in this field.
Mr Biko replied that the new Act certainly offered the EAAB better opportunities around the matter of transformation. The EAAB would not only talk about transformation, but would be able to fund it within the entity, rather than being reliant on outside parties
Ms Ngxongo said there had been a call from Members to get the different entities to work together. The Department also guided the entities to create working relationships with other entities and departments where there was common ground. Entities and departments had to realise that it was not about them individually. It was about the country, about the sector and all other stakeholders, including beneficiaries. There were areas where collaboration was crucial. In this case, the issues of consumer education cut across all entities, training as well. The NHBRC had been tasked to run the sector training academy. All entities in the sector had been instructed to collaborate with the NHBRC for their training needs. In this way, the Department and sector would achieve more.
Ms Mohlala replied that the Board was aware of the need to create public awareness of the EAAB. In a short while, the situation would change in terms of its visibility to the public. It was planning a billboard programme and was planning to make use of electronic media and put out advertisements. It also planned to do more interviews about its work and was planning workshops and road shows where it would speak directly to the public in the different provinces about its work.
Ms Powell referred to Section 50 of the new Property Practitioner’s Act, which prohibited the authority from issuing a Fidelity Fund Certificate to any person or entity not in possession of a black economic empowerment (BEE) certificate. More than 40 000 estate agents/agencies would not have BEE certificates. According to the new Act, the Minister would not have the authority to declare a blanket exemption in this case. She asked how the Board intended to assist in the issuing of BEE certificates. She asked for clarity regarding how this situation was going to be remedied through regulations.
Ms Mohlala replied that it was correct that Section 58, subsection 10, spoke to the fact that, for an individual to get a valid FFC, he/she needed a BEE certificate. That would be a requirement under the new Act. The question was in relation to whether the EAAB would be able to issue 40 000 new FFC’s in response to that requirement. The EAAB believed that it would be able to do that. There was a transitionary provision under Section 75 that explained the powers of the EAAB in terms of putting systems in place in preparation for the Act to come into effect. There would be a period of around six months during which all systems had to be put in place. In terms of Section 77, the President had the authority to promulgate an effective date. All stakeholders would know that from that date onwards, the new Act would be effective. All systems, resources and plans needed to be put in place in order to be ready by that effective date. Part of the new dispensation would be a proper licensing regime.
Ms Powell said that the current board of the EAAB was a transitional board, appointed by the Minister on 5 July 2019. She wanted clarity on which section of the Act allowed the Minister to appoint a transitional board. Was the board valid? How long would this transitional board exist before a permanent board would be appointed?
Mr Biko replied that the headline question that he thought the board had to respond to, was the question that came from Ms Powell. The same question had come from one of the industry players. The EAAB board had to explain how the Minister had appointed the board in an interim capacity. The EAAB had advised the industry player that the appointment and the appetite was the Minister’s process and appetite, which meant that the competent authority to respond to that question was the Minister. The EAAB had respectfully advised the industry player to ask the Minister, and the EAAB advised the Portfolio Committee to direct that question to the Minister as well. The assurance that he wanted to provide was that the board of the EAAB consisted of professionals -- lawyers, advocates, judges, accountants, developers and town planners. These were people who were fruitfully otherwise engaged. They saw their service on the EAAB board purely as an act of service, particularly if one considered the sacrifice under the new Public Audit Act, and the responsibilities that came with it.
Ms Ngxongo added that the EAAB Act was 43 years old. It had been promulgated in 1976, so it was highly unlikely that there would be a section which referred to issues of good governance. For the appointment of the interim board, the Department had piggy-backed on the principles of good governance, and the Minister had the powers to do what was necessary in the interest of good governance.
She said that the interim board was appointed until the new board under the newly promulgated Property Practitioner’s Act would be operational. The process of appointing the new board had begun already. The President only had to indicate the date on which the Property Practitioner’s Act would become effective.
Ms Powell had a concern about the raising of funds in the trust accounts, because in previous legislation, estate agents were required to deposit interest raised by agent’s trust accounts into the fund. She understood that the current legislation no longer required agents to deposit interest earned into the fund. The Board currently drew a management administration fee of R50 million. During the last FY, this arrangement of agents not paying interest into the fund had added up to a loss of more than R44 million. If this arrangement continued, it could mean a loss of R44 million in interest per year. Had these losses been taken into account?
Ms Mohlala replied that the Board received a management fee. The Fidelity Fund paid the board for its administration. This fee could be drawn on a monthly basis, or periodically. There was a policy in place which had been approved by the board. It also set a maximum threshold for the amounts which could be drawn from the fund. There were rules which governed how this fee was accessed. The AG also audited this fund to make sure there was no abuse. There was a question on the interest which must accumulate in the fund. Estate agents were no longer obligated to hold their funds in trust, which would affect the amount of interest which would accrue to it. The EAAB was well aware of that fact. It was grappling with this issue before the promulgation of the Act.
The EAAB believed that there would be a regulation-making process in which the Department and the EAAB would engage, and the stakeholders would look for a mechanism to make it obligatory for estate agents to put their funds in their trust accounts so that interest could accrue to the Fidelity Fund. One of the uses of the fund was to finance transformation in the sector.
Ms Powell said the answers were enlightening and for the most part adequate. She wanted to put it on record that her party welcomed the attempts to transform the industry. The questions raised were not attempts to resist change. They were for the sake of clarity from an operational and administrative perspective, so that the process could be streamlined and there would not be any hiccups in terms of what the prescripts of the new Act required. Her understanding was that the new Act would, through the promulgation and development of regulations, make the payment of interest by estate agencies into the Fidelity Fund obligatory. Her understanding, as a legislator herself, was that regulations could not extend the prescripts of the law. This question had been raised in the NCOP already, and the same response had been given. She cautioned prescribing to estate agents to pay interest accruals into the Fidelity fFund through regulations, while the Act itself did not mandate that. Did the board anticipate a legal challenge in this regard?
Ms Mohlala replied that contentions would be dealt with in the regulation-making process. There was a public process part to it, where all stakeholders would be free to raise all their contentions relating to this matter. The Department would be able to justify its decisions and legal experts would be part of the process to ensure that whatever was decided stayed within the prescripts of the law. This process should obviate any need for litigation.
Ms Mohlala asked for a performance bonus overview for the EAAB for FY 2018/19.
Ms Son replied that for the year under review, no performance bonuses had been allocated, as stated on page 148 of the annual report.
The meeting was adjourned.